Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Economic Analysis & Monetary Policy

Factor Payment

What is a Factor Payment?

Written by Jason Gordon

Updated at March 26th, 2023

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

What is a Factor Payment?

For every factor of production (or input), there is an associated factor payment. Factor payments are what the firm pays for the use of the factors of production. From the firm’s perspective, factor payments are costs. From the owner of each factor’s perspective, factor payments are income. Factor payments include:

  • Raw materials prices for raw materials
  • Rent for land or buildings
  • Wages and salaries for labor
  • Interest and dividends for the use of financial capital (loans and equity investments)
  • Profit for entrepreneurship. Profit is the residual, what’s left over from revenues after the firm pays all the other costs. While it may seem odd to treat profit as a “cost”, it is what entrepreneurs earn for taking the risk of starting a business. You can see this correspondence between factors of production and factor payments in the inside loop of the circular flow diagram.

We now have all the information necessary to determine a firm’s costs.

Back to:ECONOMIC ANALYSIS & MONETARY POLICY

Relate Topics

  • Theory of the Firm
  • Capital Formation
  • Rent Seeking
  • Structure Conduct Performance Model
  • Integration
  • Co-Insurance Effect
  • Conglomerates
  • Cost vs Profit Center
  • Accelerator Theory
  • Market Structure
  • Fixed Cost vs Variable Cost
  • Actual vs Implicit Costs
  • Explicit Costs
  • True Cost Economics
  • Accounting Profit
  • Economic Profit
  • What are Factors of Production?
  • Factor Income
  • Production Function
  • Fixed and Variable Inputs
  • Short-Run and Long-Run Production
  • Short Run
  • Total Product
  • Marginal Product
  • Value of Marginal Product
  • Law of Marginal Diminishing Product
  • Production Function
  • Production Possibilities Frontier
  • Capital 
  • Labor Theory of Value
  • How the Production Function Estimates Inputs
  • Factor Payment
  • Economic Rent
  • Cost Function
  • Incremental Cost
  • Marginal Input Cost  
  • Fixed and Variable Costs
  • Diminishing Marginal Productivity
  • Costs Relate to Diminishing Marginal Productivity
  • Law of Diminishing Marginal Returns
  • Average Total Cost
  • Average Variable Cost
  • Marginal Cost
  • Average Profit or Profit Margin
  • Accounting Profit
  • Economic Profit
  • Normal Profit
  • Short and Long-Run Production
  • Cost Curves
  • Long-Run Average Cost (LRAC)
  • Production Technologies
  • Economies of Scope
  • Economies of Scale
  • Diseconomies of Scale
  • Minimum Efficient Scale
  • Increasing, Constant, and Decreasing Returns to Scale
  • Shape of the Average Long-Run and Short-Run Cost Curves
  • Returns to Scale
  • Diseconomies of Scale
  • Long-Run Average Cost Curve Affect Industry Competitors
  • Technology Shifts the Long-Run Average Cost Curve
  • Law of Diminishing Marginal Returns
factor payment compensation

Was this article helpful?

Yes
No

Related Articles

  • Economic Bubble - Explained
  • Classical Growth Theory - Explained
  • Agflation - Explained
  • Nash Equilibrium - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand